Asking Seller to pay for closing cost and escrow fees?

Question

Hi,

So I am in the middle of negotiating with the seller.

I told to listing agent that if I want to accept the seller's offer, he would have to pay for all the closing cost and escrow fees.

(I am new to this. This would be my first deal. I never bought a house.)

Did I ask the right thing? The agent responded back with

I read that buyer is usually responsible for those fees, but I know that everything in Real Estate is negotiable. And have heard stories people having the other party pay for it.

How should I respond back to that?

Thanks.

Jeff Bridges · Answer

Your settlement company (you have to pick one out that you like) OR your loan officer can give you a loan worksheet (loan company) or estimated HUD (settlement/ title company), which will give you a sense of what you will need to pay at closing (it includes all closing fees, transfer fees and such listed out). This sorts out how to find and estimate of what you might expect to pay. Your bid offer cant say "I want you to pay for everything," rather it must include a specific seller credit for costs incurred at closing. So if your closing costs are ~$3-6k (average financed closing cost before down payment), you can ask for seller concessions for that same amount. If you are financing your offer, you need to ask the loan officer what your maximum seller concessions that are allowed to meet your loan conditions (conventional is usually 3% of bid offer max, but cash offers you can ask for whatever you'd like (and whatever seller might accept)). Finally, with financed offers, buyer is usually not allowed to receive credit from seller for escrow items/ fees. You need to fund that yourself (insurance, taxes etc). So in sum, you need to find out your max allowed seller credits/ concessions, you need to then find out an estimate of your closing costs (not including your down payment), then even then, you might only be able to ask for 3% in seller credits for closing, which might not cover all of your closing costs. Be prepared to have to pay for those closing costs that arent covered. you'll know what to expect to pay at closing if your offer gets accepted. hope that helps!

and no, you are not usually allowed to roll escrow prepaids into the loan. They need to be funded by you so they can pay insurance, state property tax etc. Not just an IOU to them:)

Michael Quarles · Answer

The reality is that if you ask the seller to pay the cost rather then asking them to reduce the price of the purchase you are in fact paying the cost.

Steve Babiak · Answer

I agree with Michael Quarles.  Given that in PA you will have a transfer tax (RTT) that gets paid, it's possible to set up the purchase so that your purchase price is lower but the seller nets the same or more!

So the typical RTT in PA is 2%.  Common practice is to split RTT equally between buyer and seller.

So in common practice, with $100K purchase amount, seller will net $99K due to seller paying $1K of the RTT.  I will offer to buy from seller for $99K and I pay all RTT; so seller still nets $99K (no different than the common practice), but I pay total (purchase price plus ALL of the RTT) only $100980 (vs the common practice scenario where I would have paid $101k total).  This example shows a tiny dollar amount, but if you buy in one of the locations where the RTT is 4% or 5% you can have better results.

Michael Quarles · Answer

Steve's example holds true for title costs as well as the cost is calculated on the sales price. So if you reduce the purchase price by the cost then pay them yourself youre paying less.

Steve Babiak · Answer

Michael Quarles - of course you are correct.  Once the purchase price is lower, title costs get lowered, and other fees / expenses based on purchase price will also be lowered.  And any splits also get lowered, and by the buyer accepting to pay for all the fee rather than splitting, the net to seller can be kept the same at a lower purchase price. I kept the example above to just RTT because I could make the simple math involved work (2% is the actual RTT for most areas in PA), and hoped that the astute readers (such as yourself) would be able to take the concept and extend it ...

Simon W. · Answer

Michael, I am bit confused with your statement

Example

$35,000 is what I will pay and he will pay for the cost that might be $3000. I save myself $3000.

If I ask him to reduce the price to $32,000 sure I can pay the cost.

If it's $35,000 and I need to pay for the cost, that's a total of $38,000 that I am paying.

He gave me the price and of course I don't want him to have the last offer. I want it to be in terms that I can work with.

Simon W. · Answer

Scott, I am only doing so because of the seller's counteroffer.

Scott W. · Answer

with the market coming back, and becoming a seller's market, do you think the days of the seller paying for some of the buyer's closing costs will go away? it's stupid i should have to pay for somebody's closing costs. if they can't afford, they should just have it rolled into the loan or save enough $ until they can afford it.

Jeff S. · Answer

You could just ask the seller to pay a specific amount of the buyers closing cost: "Seller agrees to pay $1,000 of the buyers closing costs and in addition agrees to forfeit any tax prorates and/or reserves to the buyer at closing."

You need to check out what typically is allowed with each type of financing because many times an appraiser will just deduct that from the sales price and your appraisal will come in low.

Bill Gulley · Answer

As others have mentioned, the seller is limited to what they can pay. Manipulating the sale price, up or down doesn't effect costs that much as there are cash expenses and amounts financed won't help.

This looks like an estmate by a lender, there are certainly some gig fees there,  an insured closing letter is free from the title company and given to the lender, so ask what that "closing protection letter" BS is. Looks like the loan amount might be 69,500 underwriting and processing 2 points, and who gets that origination fee of only 280?

What is a title endorsement? Who endorses title other than the notary attesting to the seller's signature?

Your real estate taxes should be 2/3 months in escrow and 5 months for arrears, not a years worth. Depends on when you close. Unless PA has some years tax escrow requirement.

Title insurance looks high, perhaps charging for a lenders policy and owner policy, lender's policy is usually free to lenders, if your sale price is about 76K, yes, I'm guessing based on title insurance costs and transfer tax.

Anyway, find out who the closing company is and confirm costs charged they should tell you. I'd be loan shopping too and beating down gig fees, but it is whatever is customary there. :)

Asking Seller to pay for closing cost and escrow fees?

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